10 Common Types of Claims in Construction / EPC Projects
Ilamparithi BoologaSundaraVijayan
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1.Delay Claims:
Delay claims arise when a construction project takes longer to complete than the agreed-upon timeline. Causes of delay can include unexpected site conditions, changes in scope of work, problems with approvals and permits, and other factors. The consequences of delay can be significant, including additional costs for the contractor, reduced profits, and impacts on the project's schedule and budget. The party responsible for the delay may be required to compensate the other party for any additional time and expenses incurred. In some cases, delays may result in the assessment of liquidated damages, which are predetermined damages assessed for each day the project is delayed. To mitigate the risk of delay, it's important for all parties involved in the project to closely monitor the schedule and proactively identify and resolve potential issues.
2.Cost Overrun Claims:
Cost overrun claims occur when the actual costs of a construction project exceed the budget. Causes of cost overruns can include changes in scope of work, inflation, increased materials costs, and other factors. Cost overruns can have a major impact on the project budget, as well as on the contractor's profits. To minimize the risk of cost overruns, it's important to have clear and detailed contract documents, to accurately estimate the costs of the project, and to regularly track and review the budget throughout the project. In the event of a cost overrun dispute, the parties involved may need to negotiate a resolution to the issue, which may involve additional funding from the owner, changes to the scope of work, or other measures.
3.Design Deficiency Claims:
Design deficiency claims arise when the design documents provided by the architect, engineer, or owner contain errors or omissions. These errors can result in additional time and money being required to correct the design issues, causing delays and increased costs to the project. The party responsible for the design errors may be required to compensate the other party for the additional time and expenses incurred. To reduce the risk of design deficiency claims, it's important to have a thorough review process in place, to accurately and consistently document the design, and to regularly communicate and coordinate with all parties involved in the project.
4.Changes in Scope Claims:
Changes in scope claims arise when the scope of work for a construction project changes after the contract has been signed. Changes in scope can result from a variety of factors, including changes in the owner's requirements, new regulations or laws, or the discovery of unexpected site conditions. Changes in scope can result in additional time and expenses being incurred, and can also impact the project schedule and budget. To minimize the risk of changes in scope claims, it's important to have clear and detailed contract documents, to proactively communicate and coordinate with all parties involved in the project, and to have a process in place for managing and resolving change order requests.
5.Payment Disputes:
Payment disputes can arise in a construction project when a contractor or subcontractor feels that they have not been paid the full amount they are owed. Causes of payment disputes can include misunderstandings over the scope of work, disagreements over the quality of work performed, and other factors. Payment disputes can result in significant financial losses for the contractor or subcontractor, and can also impact the project schedule and budget. To minimize the risk of payment disputes, it's important to have clear and detailed contract documents, to regularly review and approve invoices, and to have a process in place for resolving payment disputes in a timely and fair manner.
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6.Quality of Work Claims:
Quality of work claims arise when the work performed on a construction project is not up to the standards specified in the contract documents. Quality of work claims can result from a variety of factors, including a lack of proper training and equipment, a failure to follow proper construction methods, or a lack of quality control measures. Quality of work claims can result in additional time and expenses being incurred, as well as a reduction in the overall quality of the project. To minimize the risk of quality of work claims, it's important to have clear and detailed contract documents, to provide proper training and equipment to the construction personnel, and to have a robust quality control process in place.
7.Warranty Claims:
Warranty claims arise when a defect or problem with the work performed on a construction project is discovered after the project has been completed. Warranty claims can result from a variety of factors, including poor workmanship, the use of defective materials, or a failure to properly maintain the work. Warranty claims can result in additional time and expenses being incurred, as well as a reduction in the overall quality of the project. To minimize the risk of warranty claims, it's important to have clear and detailed contract documents, to properly train and supervise the construction personnel, and to provide a comprehensive warranty and maintenance program.
8.Termination Claims:
Termination claims arise when one party terminates the contract for a construction project before it has been completed. Causes of termination can include a breach of contract by one of the parties, a failure to make progress on the project, or other factors. Termination claims can result in significant financial losses for both the owner and the contractor, as well as a disruption to the project schedule. To minimize the risk of termination claims, it's important to have clear and detailed contract documents, to proactively manage and resolve any issues that arise during the project, and to have a process in place for resolving termination disputes.
9.Liquidated Damages Claims:
Liquidated damages claims arise when a predetermined amount of damages is assessed for each day that a construction project is delayed. Liquidated damages are often included in the contract documents to provide a deterrent for the contractor to complete the project on time and to provide compensation to the owner for the delays. Liquidated damages claims can result in significant financial losses for the contractor, and can also impact the project schedule. To minimize the risk of liquidated damages claims, it's important to have a clear and detailed contract that accurately defines the timeline for the project, to proactively identify and resolve any potential delays, and to have a process in place for assessing and collecting liquidated damages in the event of a delay.
10.Performance Bond Claims:
Performance bond claims arise when a contractor fails to perform the work specified in the contract, or when a subcontractor fails to perform the work they have been contracted to do. Performance bond claims can result in the owner being required to find another contractor to complete the work, resulting in additional time and expenses being incurred. Performance bonds provide a guarantee that the contractor or subcontractor will perform the work in accordance with the contract, and can be used by the owner to recover any damages incurred as a result of the contractor or subcontractor's failure to perform. To minimize the risk of performance bond claims, it's important to thoroughly vet and select the right contractor or subcontractor, to have clear and detailed contract documents, and to have a process in place for assessing and collecting performance bond claims in the event of a failure to perform.